A prominent agent and industry commentator says the threat of higher Capital Gains Tax risks forcing yet more investors to quit the buy to let sector.
David Alexander, joint chief executive of online property management service apropos, says news that the Chancellor has been told he could raise more revenue by doubling CGT is alarming for the lettings industry.
“Targeting the private rented sector is extremely risky as it is the second largest provider of homes in the UK and it would be impossible to fill this gap if there was a mass exodus of landlords and investors from the market over a short period” says Alexander.
“Additionally, any large-scale exit from this market would flood the market with homes depressing prices at a time when the property sector is in desperate need of support” he adds.
Alexander says he understands the need for the government to consider revenue-raising options given the scale of public spending required by the Coronavirus pandemic, but he says CGT increases would “stifle growth, discourage investment, and depress the housing market.”
He continues: “I think people need to feel they have an asset that is worth something and property has always been a particular British obsession. To suddenly dissipate accumulated value in an asset with little notice would disillusion many. Equally the private rental sector and property investors need to feel that the UK is a safe and profitable market now and, in the future, and this could divert money from the UK to other markets at a time when it’s most needed.”
Earlier this week it was revealed that the Treasury's own Office for Tax Simplification produced a report for Chancellor Rishi Sunak explaining that £14 billion could be raised by cutting CGT exemptions and doubling rates - owners of buy to let properties and holiday homes would be a major target for the increases.
The OTS says the tax could be doubled, made simpler in its structure, and brought roughly in line with income tax.
"The disparity in rates between Capital Gains Tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains" the report claims.
The OTS’s consultation ahead of the report - which received over 1,000 responses - revealed a range of areas in which Capital Gains Tax is apparently counter-intuitive and creates "odd incentives." Some respondents argued that CGT is a barrier to economic growth, others that it is a barrier to a more equitable society.
The Treasury says: "The government's priority right now is supporting jobs and the economy. We thank the OTS for their independent report which will be considered in due course.”